Egypt's Credit Risk Lower Than Peers as Investors Ignore Ratings

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(Bloomberg) -- Egypt is bucking the conventional wisdom when it comes to gauging a country’s ability to repay its debt.

Two major credit rating companies rank the North African nation lower than Nigeria and Argentina, two of its main emerging-market competitors. Yet the cost of insuring Egypt’s debt against default for five years is lower than Nigeria’s and almost the same as Argentina’s. The suggestion is that investors are prepared to look past credit ratings when assessing a nation’s ability to repay debt.

“No matter what they say, investors prefer strong macro and political continuity,” said Elina Ribakova, head of EMEA Research at Deutsche Bank AG in London. Argentina is still struggling to get inflation under control, while Nigeria’s foreign currency regime is “far from transparent,” she said.

Egypt’s high-yielding Treasury bills have attracted more than $20 billion in foreign investment since November 2016, thanks to the predictability of its politics and an International Monetary Fund-backed plan to cut spending and end a crippling dollar shortage. This week, it raised two billion euros in an international bond sale that attracted more than 7 billion euros in bids.

Egypt’s long-term foreign-currency debt is rated B3 at Moody’s Investors Service and B- at S&P Global Ratings, both six levels below investment grade. Nigeria’s ratings are one step higher at both companies, and Argentina’s a level higher at Moody’s and two notches up at S&P.

Egyptian equities are also outperforming higher-ranked peers. The benchmark EGX30 rose 18 percent since the beginning of 2018, the third-best performer out of 106 indexes tracked by Bloomberg.

©2018 Bloomberg L.P.

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